Mainland China arrived at its ‘moment of truth' as all key luxury players struggled to revamp the market.

While Bain points to tourism as the major driver of the global luxury industry's performance, other factors have been at work reshaping the market over the last 15 years. The overall number of luxury consumers has increased from 140 million worldwide to over 350 million. Today, Chinese consumers make up more than 30 percent of global luxury spending and are largely responsible for the shift from local consumption to touristic spending, which now accounts for about 50 percent of all luxury spending. Despite this ‘rush to luxury,' price awareness and consciousness among consumers has increased significantly, leading to a rise in the off-price luxury market, which now represents more than 30 percent of total luxury sales.

"Current market dynamics shine a light on how the industry has changed over the last 15 years," said Claudia D'Arpizio, a Bain partner and lead author of the report. "Pricing, distribution and customer strategy remain at the top of the agenda for luxury companies, but the old models are being called into question. In this new environment, brands must undergo a fundamental paradigm shift if they want to win in the years to come.

Regional Highlights

The European market overall had a good start to 2015, fueled by rising touristic spending (especially from China and U.S.), exploiting a weak Euro. Western Europe was sound while Southern Europe continued on a path to recovery. However, the decline in Russia (and in Russians' spending around the world) showed no sign of an immediate turn-around; 3-5 percent (at constant exchange rates) expected market growth this year.

In the Americas, 2015 growth is set at 1-3 percent in real terms, softening with respect to 2014. This is due to the negative impact of a strong dollar on touristic spending, which is only partially offset by local consumption.

Japan held fast to its reign as the top luxury performer (5-7 percent projected growth at constant currency in 2015), benefitting from surging Chinese consumer spending, which already represents up to 20 percent of total sales. However, local consumer confidence and consumption softened, negatively impacted by a VAT increase in 2014.

Hong Kong and Macau have been penalized by weak in-bound flows, while Taiwan and South Korea are posting positive performance, supported by increasing Chinese spending;

Mainland China is still trying to shake a negative outlook, which is projected to decline by 2-4 percent in real terms, influenced by ongoing restrictions on spending and shoppers shifting towards a more price sensitive attitude that benefits off-price sales and purchases abroad.

To request a copy of the report or schedule an interview with Claudia D'Arpizio, please contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102.

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